Derivative Liabilities

12 Months Ended

Dec. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Liabilities

13. Derivative Liabilities 

(a) Continuity of Warrant Liability and Derivative Liabilities

The derivative liabilities are measured at fair value at each reporting period and the reconciliation of changes in fair value in the years ended December 31, 2022, and 2021, is presented in the following tables:

	3i Warrants			3i Fund Series A Redemption Feature
	Issued December 20, 2021
Balance as of January 1, 2022	$	11,273		$	7,181
Change in fair value		(10,899	)		(6,227	)
Amount transferred to Equity		—			(954	)
Balance as of December 31, 2022	$	374		$	—
Fair value per 3i Warrant / Series A Preferred share issuable at period end	$	0.19		$	—

	Settlement Warrants for the termination of the Financing Facility			T02 Warrants			T03 Warrants			3i Warrants		3i Fund Series A Redemption Feature
	Grant date February 23, 2020			Warrants issued December 2019			Warrants issued June 2021			Issued December 20, 2021
Balance as of January 1, 2021	$	102		$	47		$	—		$	—	$	—
Issued during the period		—			—			2,000			11,273		7,409
Change in fair value		(94	)		(45	)		(1,794	)		—		(153	)
Amount transferred to Equity		—			—			(206	)		—		(75	)
Translation effect		(8	)		(2	)		—			—		—
Balance as of December 31, 2021	$	—		$	—		$	—		$	11,273	$	7,181
Fair value per warrant / Series A Preferred share issuable at period end	$	—		$	—		$	—		$	5.58	$	363.0

(b) Series A Preferred Stock Conversion Feature – Valuation Inputs 

The following inputs were used for the Series A Preferred Stock conversions recorded in the year ended December 31, 2022 and the fair value of the Series A Preferred Derivative liability determined at September 30, 2022 and December 31, 2021: 

	January 1, 2022 – September 30, 2022*	December 31, 2021
Initial exercise price	$9.05 - $9.91	$	9.91
Stock price on valuation date	$1.10 - $10.75	$	10.37
Risk-free rate	1.03% - 4.23%		0.96	%
Time to exercise (years)	2.22 - 2.96		2.97
Equity volatility	70% - 114%		70	%
Probability of volume failure	93% - 99%		92	%
Rounded 10-day average daily volume (in 1,000’s)	$297 - $873	$	908

* The agreed conversion price adjustment (see Note 12 (b) ii.) resulted in the Series A Preferred liability value derivative being valued at zero at December 9, 2022. Therefore, there were no conversions subsequent to September 30, 2022, which impacted the Series A derivative liability.

(c) 3i Warrants – Valuation Inputs

On December 31, 2022, the Company utilized the reset strike options Type 2 model by Espen Garder Haug and Black-Scholes Merton models to estimate the fair value of the 3i Warrants to be approximately $374. On December 31, 2021, the Company utilized Monte Carlo simulations models to estimate the fair value of the 3i Warrants to be approximately $11,273. The 3i Warrants were valued at December 31, 2022 and 2021, using the following inputs:

	December 31, 2022			December 31, 2021
Initial exercise price	$	9.91		$	9.91
Stock price on valuation date	$	0.29		$	10.50
Risk-free rate		4.33	%		0.91	%
Expected life of the 3i Warrant to convert (years)		1.97			3.0
Rounded annual volatility		131	%		73	%
Timing of liquidity event		March 15, 2023			Q3 2022 – Q2 2023
Expected probability of event		100	%		90	%

(d) Investor Warrants

The exercise price of our investor warrants which were issued by Allarity A/S, described below is denominated in SEK; however, the functional currency of Allarity A/S is DKK. Consequently, the value of the proceeds on exercise is not fixed and will vary based on foreign exchange rate movements. The investor warrants, when issued other than as compensation for goods and services are therefore a derivative for accounting purposes and are required to be recognized as a derivative liability and measured at fair value at each reporting period. Any changes in fair value from period to period are recorded as non-cash gain or loss in the Consolidated Statements of Operations and Comprehensive Loss. Upon exercise, the holders pay the Company the respective exercise price for each investor warrant exercised in exchange for one common share of the Company and the fair value at the date of exercise and the associated non-cash liability will be reclassified to share capital. The non-cash liability associated with any investor warrants that expire unexercised is recorded as a gain in the consolidated statements of comprehensive loss. There are no circumstances in which the Company would be required to pay any cash upon exercise or expiry of the investor warrants.

In connection with subscriptions of units in the rights issues carried out: 

i. October — December 2019, 1,006,822 investor warrants (“TO2 warrants”) were granted to investors. All Warrants were vested as of the grant date. A warrant gives the right, during a fixed period to subscribe for one common share in the Company for $34.50 per common share. The final exercise period for the warrants of series TO2 took place from September 1 up to and including September 15, 2021. Any TO2 warrants unexercised after September 13, 2021, expired without compensation or payment of any kind to the warrant holders. During the year ended December 31, 2021, a total of 176 warrants of series TO2 were exercised for total proceeds of $6; and

ii. in June 2021, 2,417,824 investor warrants (“TO3 Warrants”) were granted to investors and 482,250 TO3 warrants have been granted to underwriters as a non-cash consideration of the share issuance cost amounting $2,384. All TO3 Warrants were vested as of the grant date and were exercisable for $10 per common shares. In accordance with the terms of the Company’s outstanding TO3 Warrants, on August 26, 2021, the Company’s Board of Directors set an extraordinary and final exercise period for the Company’s TO3 Warrants, starting on August 30, 2021, and ending on September 13, 2021. Any TO3 Warrants unexercised after September 13, 2021, expired without compensation or payment of any kind to the warrant holders. During the year ended December 31, 2021, 274,386 TO3 Warrants were exercised for total proceeds of $2,679 and the balance expired unexercised on September 13, 2021.

The table below summarizes the number of investor warrants that were outstanding, their weighted average exercise price as of December 31, 2021, as well as the movements during the year. 

	Shares			Weighted Average Exercise Price
Outstanding at January 1, 2020		1,086,759		$	36.0
Granted		2,900,074		$	10.0
Exercised		(274,562	)	$	10.0
Expired		(3,712,271	)	$	17.0
Outstanding at December 31, 2021		—		$	—
Exercisable at December 31, 2021		—		$	—

There were no investor warrants issued or outstanding during the year ended December 31, 2022.

The fair value of the Company’s TO3 warrant liabilities, which all expired as of September 13, 2021, were estimated based upon Monte Carlo simulations under different market conditions, as scheduled below, resulting in a probability weighted value of the TO3 warrants of $2,000 at June 24, 2021, at the grant date. Warrants exercised on September 13, 2021, were re-valued at $206 using a Black-Scholes model with the assumptions noted below.

	June 24, 2021			August 30, 2021
Exercise price	$	10.05		$	9.86
Stock price	$	5.50		$	10.61
Risk-free interest		(0.55	)%		(0.50	)%
Expected dividend yield		(0	)%		(0	)%
Contractual life (years)		1.81			0.04
Expected volatility		106.5	%		104	%

(e) Financing Facility

Effective November 29, 2018, the Company established a convertible debt facility (the “Facility”) for funding of up to SEK 200 million to be funded in up to 20 tranches of SEK 10 million each over a 24-month term and bearing interest at 2% per annum. Five of the tranches receivable under the Facility were at the discretion of the investor and the Facility was convertible into shares and warrants at 50% of the nominal amount of the notes. The Company evaluated the terms of the Financing Facility in accordance with ASC 815-40-15 and ASC 815-40-25 and determined that the instrument is a derivative. Accordingly, the accounting treatment is the same as that described for Investor Warrants in Note 13(b) above.

On June 3, 2019, the Company settled one of the five tranches with a cash payment of $673 and in February 2020 the balance of the committed tranches was settled by receipt of $1,000 from the investor in cash, in exchange for a subscription of 186,600 common shares in the Company (“Settlement Shares”) valued at $2,500 and the issuance of 79,937 investor warrants (“Settlement Warrants”) valued at $625 as of the February 23, 2020, grant date. All Settlement Warrants immediately vested on the grant date, were exercisable at $20 per common share and expired unexercised as of December 12, 2021.

The fair value of the Company’s Settlement Warrant derivative liabilities, which all expired as of December 31, 2021, were estimated initially and on a quarterly basis using the Black-Scholes option pricing model and based on the following assumptions:

	Settlement Warrants for the termination of the Financing Facility
	Grant date February 23, 2020
Exercise price	$	17.0
Share price	$	13.5
Risk-free interest		(0.38	)%
Expected dividend yield		(0	)%
Contractual life (years)		3.00
Expected volatility		104.10	%